Pressures to cut back Medicaid benefits continue to be impressive. In a noteworthy decision, New York’s effort to limit funding for prescription footwear was recently rebuffed by a New York federal district court.

In the class action suit, New York Medicaid patients challenged the state’s decision to limit coverage of medically necessary prescription footwear and compression stockings to selected conditions, Davis v. Shah, 2013 WL 6451176 (W.D.N.Y. 2013). Footwear coverage was limited to use as an integral part of a lower limb orthotic appliance, as part of a diabetic treatment plan, or to address growth or development issues in children. Compression stockings were limited to patients during pregnancy or for treatment of venous stasis ulcers. New York contended that the limits were a reasonable legislative compromise necessitated by funding constraints. It argued that the limits prioritized the most common serious conditions, eliminated coverage for needs that could be met with ordinary footwear (such as bunions or hammer toes), and saved the state over $14 million that could be used on other Medicaid expenditures. New York admitted, however, that the plaintiffs’ conditions were serious even though not on the list: for example, multiple sclerosis, paraplegia, and cellulitis. The plaintiffs argued that the limits violated the Medicaid Act, the Rehabilitation Act and Title II of the Americans with Disabilities Act, and the U.S. Constitution.

With respect to the Medicaid statute, New York provides nursing home services for the categorically needy and the medically needy and must therefore provide home health benefits for these groups who are appropriate for the services. New York argued that prescription footwear was not a “home health benefit” because it was not “medical supplies, equipment, and appliances suitable for use in the home” and instead was a prosthetic, an optional benefit. The court applied both deferential review (appropriate when the US Department of Health and Human Services has approved the state plan, as here) and de novo review to find that the state’s understanding of the home health benefit provision was reasonable. A problem for the plaintiffs' argument is that they included at least one amputee whose footwear was arguably prosthetic, thus blurring the line. On this point, the court granted summary judgment for the state.

As an alternative, the plaintiffs argued that the footwear limits violated the Medicaid Act’s “reasonable standards” provision, 42 U.S.C. § 1396a(a)(17)(2013) since they did not allow for individualized determinations of medical necessity. Indeed, a diabetic with peripheral neuropathy would be covered but a patient with multiple sclerosis-caused peripheral neuropathy would not be covered. Regulations under the statute prohibit arbitrary denial of a benefit to an otherwise eligible beneficiary solely because of diagnosis, 42 C.F.R. § 440.230(c) (2013). New York contended that because prosthetics are an optional benefit, it had greater flexibility to make determinations based on diagnosis and could impose cost-control limits on patients with less serious diagnoses. The court rejected this argument, reasoning that a classification based on diagnosis for utilization control reasons that failed to serve people in similar medical need was not valid, and granted summary judgment to the plaintiffs on this claim. For similar reasons, the court granted the plaintiff’s claim that the limitations violated the Medicaid Act’s comparability provision, 42 U.S.C. § 1396a(a)(10)(B) (2013). A final argument under the Medicaid Act under which the plaintiffs were granted summary judgment was that the state could not discontinue Medicaid coverage for a service without giving them any notice at all.

With respect to disability discrimination, the plaintiffs contended that the limitations violated the integration mandate of the ADA, that services be delivered in the most integrated setting appropriate to the person’s needs. The plaintiffs argued that without prescription footwear, they were at significant risk of worsening of their conditions and the resulting need for institutionalization. The state contended in response that decisions about allocating scarce funds in the face of competing demands cannot be discrimination as long as rationally related to a legitimate state purpose. The court agreed with the plaintiffs, reasoning that unjustified isolation might result from the limitations imposed by the state’s decisions. When state policies lead to such discrimination, the court stated, the public entity must make reasonable modifications unless such modifications would fundamentally alter the service being provided. Carefully pointing out that the plaintiffs were not seeking a service that New York did not provide to anyone, the court concluded that the limitations were discriminatory under the ADA.

This is not the only recent case in which plaintiffs have prevailed against arbitrary limitations on Medicaid benefits. In Conley v. Dept. of Health, 287 P.3d 452, 465–468 (Utah Ct.App.2012), the court held that Utah's decision to cover assistive speech devices for children and pregnant women but not for adults under the home health benefit violated the Medicaid Act. These cases illustrate the importance for states seeking Medicaid cost-savings to look to such matters as treatment efficacy or determinations about individual patients' needs, rather than drawing arbitrary lines.